Inventory Performance Measurement
Inventory performance measurement is an essential aspect of purchase management. It helps companies determine whether their inventory management practices are effective or not. The following are some commonly used metrics for inventory performance measurement:
Inventory Turnover Ratio: This metric measures the number of times inventory is sold and replaced over a given period. It is calculated by dividing the cost of goods sold by the average inventory value. A high inventory turnover ratio indicates that inventory is being sold quickly and efficiently.
Days Sales of Inventory (DSI): This metric measures the number of days it takes to sell inventory. It is calculated by dividing the average inventory value by the cost of goods sold per day. A low DSI indicates that inventory is selling quickly.
Stockout Rate: This metric measures the percentage of time that inventory is out of stock. It is calculated by dividing the number of times inventory is out of stock by the total number of opportunities to sell the product. A low stockout rate indicates that inventory is well managed and stock levels are appropriate.
Gross Margin Return on Investment (GMROI): This metric measures the profitability of inventory investments. It is calculated by dividing the gross margin by the average inventory value. A high GMROI indicates that inventory investments are generating a high return.
Carrying Cost of Inventory: This metric measures the cost of holding inventory over a given period. It includes costs such as storage, insurance, and handling. A high carrying cost indicates that inventory is not being managed efficiently.
Obsolescence and Write-off Rate: This metric measures the percentage of inventory that becomes obsolete or has to be written off due to damage or theft. A high obsolescence and write-off rate indicates that inventory is not being managed properly. The above metrics can help companies identify areas where improvements can be made in their inventory management practices. By tracking these metrics, companies can optimize inventory levels, reduce costs, and improve customer service.
